A recent post I read in the Wall Street Journal exposed what I consider near-criminal margins that are enjoyed by our healthcare system. TL:DR–a man with very limited health insurance came in for a necessary procedure, and was quoted the treatment at $23,000, insisting on $20,000 up front. When the man nearly backed out of the procedure due to cost, the hospital re-classified him as a self-pay patient, and re-quoted the procedure at just over $3,000. In other words, the procedure cost $17,000 less by not using insurance.

It’s worth noting that the $23,000 figure, nearly 7-times greater than the cost the hospital was willing to charge, is determined not by the cost of the procedure and free-market principles, but by backroom negotiations between insurers and healthcare providers. Most people never see these numbers, conveniently shielded from such information by their insurance plan and seemingly well-intended doctors who (perhaps honestly) have no idea of the actual cost of their recommendations. Ultimately, had the man had insurance, and/or had the money to pay, $23,000 would be the cost he or his policy would pay out.

I always knew that there was an obvious gap between the prices set by insurer-hospitals and the actual cost of care, but I had no idea that it was that substantial. That kind of markup for such a simple (yet life critical) procedure is just wrong. I’m refrain from saying that it should be illegal, but given how much of the economy healthcare represents (though, now it’s just looking hyper-inflated), we need better regulatory oversight and policies against this type of anti-market environment, in any industry.

I thought him calling out that we’re not really using health “insurance” anymore, rather, we have “health plans” is particularly interesting. The current system of hospitals-insurance company confidentially and arbitrarily setting prices is obviously disruptive to engaging market forces here.

Clearly, we need some changes to this system. The current issues surrounding patient cost and insurer reimbursement raised two concerns:

Patients are kept in the dark about the actual cost of their healthcare care.
The medical profession seems to have developed the idea that if a patient knows the costs of procedures, that such knowledge will interfere with decision making, and have become reluctant to openly discuss costs with patients.

EFFECT: Disruption of market economics in the cost of healthcare, leading to a increasing inefficiency. This much is obvious. And rising costs disproportionately fucks over those with less means.

ISSUE #2. We need better oversight into the actual cost of care vs. the billed cost, including making it more clear to the patient.
In Singer’s case, it’s obvious why a number like this $20,000/$3,000 would be hidden–because it is absolutely obscene to charge that much of a margin on any product, let alone a “routine procedure” that also happens to be life critical. For every Jeffrey Singer in this article, I imagine there is a horde of less fortunate patients that were affected by this withholding of information. But what about these preferred provider contracts that prohibit sharing of this knowledge?

EFFECT: Increasingly frequent ridiculous margins to which are out of proportion with anything that an efficient market would consider a valid price given the demand and the base cost of goods. The ensuing pain is broad: The tax paying public at large, and the nation a a whole is paying for.

These are such systemic issues that a broad rethinking involving all stakeholders in the healthcare system is required. As a patient interacting with healthcare providers, I find the opaque nature of healthcare and the deliberate withholding of information to laypersons to be outdated.

We need policies that allow engagement of the market to incentivize improvements in healthcare (cost, efficiency, effectiveness).
At the provider–costs need to be made more clear at the onset. That includes any checkups, preventive care, cost of tests, and doctor visit cost. Across the industry (and within each relevant subsection region or subsection of the market), costs for procedures, particularly “routine” procedures need to be made public, and easily accessible to patients.

We also need policies that disincentives care providers giving and billing wasteful procedures.
I’m sure there’s a liability factor here, where the risk of getting sued (substantial) for a missed diagnosis leads to doctors to over-provide services; particularly if the patient is the one pushing to get the procedure. I think this can be partially solved by solving Change #1–the rest we’ll need political solutions for, including the legal framework for measuring and rewarding efficiency.

One last thought–I don’t know why the author feels the ACA is going in the wrong direction. The ACA at least provides for an oversight board to call out and publish reasonable rates for procedures. Also, his suggestion that insurance should just be insurance is short-sighted; people want health plans, and with health plans, we can develop broader strategies to improve health, including better incorporating preventative care. Totally worth it to just NOT CODE THE BUG instead of spending 10x more to fix the issues that come up later.